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Demand-driven development and good job growth create a strong market in nation's fourth-largest city Giorgio Borlenghi, president of Interfin Corp., has tremendous confidence in Houston. The developer of Four Leaf Towers and Four Oaks Place is building a 150,000 sq. ft. European-style luxury retail center, Uptown Park. The project is adjacent to Villa d'Este, Interfin's newly announced 27-story residential condominium tower- the first high-rise condominium to be built since 1984.

"We expect Villa d'Este to be sold by the time it opens in the spring of 2000," says Borlenghi. "We also think the timing is right for a luxury retail center."

Matt Khourie, president of Trammell Crow Houston, agrees about market timing. This month, the company began construction of a 380,000 sq. ft. structure in City West Place. "We're bullish on Houston," says Khourie. "We just bought a 10.6-acre tract in the Energy Corridor to build two 320,000 sq. ft. office buildings."

Namir Faidi, the president of Sunhill International is also high on Houston. Sunhill is building a 102-unit retirement center in Clear Lake. "The market for retirement centers is excellent," he adds. "Demand is far greater than the supply. Rental rates have increased some 10% over the past 18 months."

According to F.W. Dodge, $2.4 billion worth of building permits were issued last year, up 40% from the previous year. Construction contracts for nonresidential and residential buildings totaled $3.5 billion, an increase of 17.3%. Nonresidential contracts rose 21.8%.

Yet what is different about today's Houston is that decisions to develop are based on demonstrated demand. Some 89,000 jobs were created in the 12-month period ending in April- a 4.8% gain- reports the Texas Workforce Commission. Unemployment hit 3.9% in March, the lowest it has been in some 15 years.

Office experiences strong absorption "The office market in Houston is on track for another good year," reports Ronnie Deyo, vice president of The Staubach Co.'s Houston Corporate Services office. "Total absorption for the first quarter was approximately 670,000 sq. ft., with over 50% of this absorption in Class-B buildings."

Class-A buildings had an outstanding 1997, he adds, when some 7 million sq. ft. was absorbed, and Class-A space in the largest business centers is more than 95% occupied.

Net absorption during the first quarter of this year was 512,000 sq. ft., with the overall weighted lease rate at $16.14 per sq. ft., reports CB Richard Ellis Inc. New construction is pegged at 1.3 million sq. ft., says CB senior analyst Mary A. Doetteri, with the CBD vacancy rate at 13.3% and the suburban rate at 10.5%.

Thus, the commercial market is exceptionally strong, reports Peyton Collins, regional director of Insignia Commercial Group Inc. in Houston. "There isn't that much Class-A space out there left," he continues. "Everything we have is full, so we're able to punch up rents a little bit. There is about 1.5 million sq. ft. under construction- 30% is preleased- and that doesn't include build-to-suits."

Office projects announced or under construction are impressive. Century Development has announced a new downtown tower, a 36-story, 700,000 sq. ft. office tower. Fuller Realty has purchased 16 acres in the Greenspoint area and is planning to construct several office buildings, the first will be a 12-story, 300,000 sq. ft. structure called Two Commerce Green.

Cabot Oil and Gas is planning a new 154,000 sq. ft. corporate headquarters in the Energy Corridor. "Cabot's new headquarters building spurs construction activity and generates much needed space for expansion in the energy corridor," says Pamela Lovett, president of the Greater Houston Partnership's Economic Development Division.

The current growth trend in the CBD has no end in sight, says Chuck Goldstein of Goldstein & Associates/CRESA*Houston. "Many streets in the CBD are currently at an impasse, while the laying of new infrastructure and improvements on right-of-way continue," he adds.

A combination of a residential re-emergence, the construction of the Union Station Baseball Stadium and the planned Grand Prix Road Race in the CBD in October has the city working overtime. Also the announcement of the first new office building to be built in the CBD since the early 1980s- Century Development's project- has contributed to the significant interest in the downtown Houston market, Goldstein adds.

Fluctuating energy prices are not expected to derail the commercial development, syas Khouri, but he is worried more about the consolidations of Baker Hughes and Western Atlas and ARCO and Union Texas. "All that consolidation is going to have an effect, potentially consolidating some of the jobs in Houston."

Retail renovation slows construction Mirroring the city's economy, the Houston retail sector is also very active. "I think there is a little less construction than in past years, which is needed, although there is a lot of building under way as well as on the drawing boards," says Andrew "Drew" Alexander, president of Weingarten Realty Investors.

Renovation continues to be a strong area for growth, he adds. "We have an extensive renovation at North Oaks Mall at FM 1960. It was built as a mini mall, but the concept faded, and we've turned it into a power center," he says.

E. D. Wulfe, president of Wulfe & Co., which recently acquired Gulfgate Mall with plans to redevelop Houston's oldest mall to cater to the city's expanding Hispanic population, says Houston's retail market continues to strengthen. "The influx of major big-box users has slowed somewhat," he adds. "At the same time, there's a lot of in-fill and related tenants coming to the market. Houston will probably add 2 million to 2.5 million sq. ft. of retail space this year, down from the previous three years, when it did about 4 million to 4.5 million sq. ft."

Chelsea GCA Realty of Roseland, N.J., is proceeding with plans to build a $150 million project in the Katy Freeway area. Named Houston Premium Outlets, it will be a large retail center with more than 200 stores. In addition, the Mills Corp. of Arlington, Va., announced plans to build another outlet store mall less than five miles west of the Houston Premium Outlets site.

CenterAmerica Property Trust, a Houston-based REIT, is beginning development of its first ground up property at Beltway 8 and Interstate 45, and Day Properties Corp. of Los Angeles is redeveloping the 1.1 million sq. ft. San Jacinto Mall. The first phase of a new 700,000 sq. ft. entertainment complex, Willowbrook Plaza, is under construction at State Highway 249 and Gessner.

Industrial vacancies continue to drop Houston's industrial sector continues to show single-digit vacancy rates- and an increase in construction. "Despite the addition of over 11 million sq. ft. added since 1995, vacancies have fallen to below 6% by the beginning of the year," says Goldstein.

Vantage Cos. is planning a 194,000 sq. ft. warehouse on Clay Road. Vantage is also planning to build 400,000 sq. ft. of warehouse space in the Northwest Point Business Park. The company has also purchased 32 acres at 290 and Beltway 8 with plans for two buildings of 233,000 sq. ft. and 126,000sq. ft.

Trammell Crow has just completed the 60,000 sq. ft. Southwest Tech A, which is now 100% leased, and is starting another 120,000 sq. ft. building. Also under development is Northwest Place 2, a 220,000 sq. ft. spec industrial building. Wedtech Inc., a Canadian plastics firm, is proposing a 130,000 sq. ft. facility near the Houston Ship Channel, while Tramontina, a Brazil-based company, plans to build a $7 million, 230,000 sq. ft. office and distribution center in Sugar Land Business Park.

Multifamily competition on the rise Development is also strong in the multifamily market. Ric Campo, CEO of Camden Property Trust, a Houston-based REIT, notes his company is building some 2,000 units in the area, most of them within Loop 610. "Houston is building 13,000 units right now and, up to now, we've absorbed everything built," he explains.

Houston's inner Loop continues to attract a major share of development. Metro National Corp. is developing a 364-unit seniors housing project near Buffalo Speedway and Bissonnet. The Finger Cos. is doing an apartment project near the intersection of Buffalo Speedway and West Alabama. The Morgan Group is considering a residential tower with 200 to 400 units in the Museum District. Houston developer Mel Powers is also planning a townhome project, Oaks of Caroline.

The CBD and Midtown area are also attracting multifamily development. John A. Williams, chairman and CEO of Atlanta-based Post Properties, notes his company is nearing completion of the redevelopment of the Rice Hotel- with local partner Randall Davis- and is beginning construction of Post Apartment Homes in the Midtown area. "Fundamentally, there is a huge demand for in-town living in Houston, driven by demographics, customer preferences, changing lifestyles and a desire to be close to work and recreational facilities," he adds.

JPI is developing Jefferson at Oak Park, a project of 419 luxury apartment homes a quarter mile southwest of the CBD. Also, Creekstone Buildings is planning a 428-unit apartment project, while the Hanover Co. is planning a 324-unit complex. Noted apartment developer Martin Fein, president of Martin Fein Interests, is planning a 236-unit, $13 million project in Silverlake. Fein is also building The Equinox, a 320-unit project in Kingwood.

With nearly every sector performing well, developers have one question: Will such heady times continue? Analysts say the answer is in the affirmative, noting that with a strong, expanding economy, Houston is expected to continue to grow. In addition, those in the industry are well aware of the folly of overbuilding.

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